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Bringing a Little More of America to Japan

Japan could be a ripe market for American private equity funds.

If there's a buck to be made somewhere in the world, the private equity boys will put together a fund, grab some plane tickets, and make that buck. To that end, the revival in Japan's economy and the loosening-up of some policies and procedures is leading to a lot more private equity interest in the land of the rising sun.

Earlier this week, news came out that Carlyle Group was doubling the size of its Japan buyout fund to something on the order of $1.7 billion. Other investors like Fortress and RHJ International have put more than $3 billion to work there as well, and now Morgan Stanley(NYSE:MS) is also apparently looking to launch another, larger private equity fund for Japan.

From where I sit, this looks like the confluence of several separate but significant trends. First of all, the Japanese economy is perking up, but local investors don't seem quite as keen on their equities as foreign investors do. That seems to have led to some bargains.

Second, Japan is loosening up when it comes to the ideas of corporate takeovers and significant foreign involvement in those takeovers. Shinsei Bank was a high-profile example that has thus far worked out pretty well for all involved. As Japanese companies warm to the idea of maximizing returns on capital and running companies in shareholders' interests, the complicated and intricate cross-holdings that snarled past deals are going away.

Third, it seems only natural that private equity money would start to head offshore in a bigger way. Whether you want to argue that the U.S. market is saturated or not, there's definitely less private-equity activity outside the U.S. and Western Europe, relative to the size of the economies involved. Heck, even Japan's largest bank, Mitsubishi UFJ(NYSE:MTU), is getting into the act with a modest $150 million private equity fund targeted at China, Hong Kong, and Taiwan.

We're a long way away from a "Barbarians at the Gate"-style takeover of Sony(NYSE:SNE) or Kyocera(NYSE:KYO), but it certainly seems that the phenomenon of more aggressive U.S.-style investing is spreading around the globe.

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Fool contributor Stephen Simpson owns shares of Shinsei Bank, but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares). The Fool has a disclosure policy.